Silver falls for a second day and has approached a one-year low. On Wednesday morning, XAG/USD is trading around $49.20 per troy ounce. On November 3, the metal dropped to $48.62. Gold, meanwhile, is holding near $3,930.
XAG/USD is the price of one troy ounce of silver in dollars. A troy ounce is the standard unit of weight for precious metals.
For a trader, this is a divergence between the two metals. Gold is standing still, silver is losing value. The same news affects them differently.
How far has silver fallen behind gold?
The gap between the metals has widened. The gold/silver ratio has risen to 80.
The ratio shows how many ounces of silver one ounce of gold is worth. The higher the number, the greater silver's lag.
- Commerzbank - the bank notes that silver is currently noticeably weaker than gold
- $48.62 - the one-year low reached on November 3
- $3,930 - the level around which gold is holding
Why did the sell-off begin?
The trigger is the US midterm elections. Democrats are heading toward a majority in the House of Representatives.
- Vote count. 253 of 435 seats have been processed.
- The breakdown. Democrats have 152 seats, Republicans 101.
- The threshold. 218 seats are needed to control the chamber.
- What it means for the market. It is a question of fiscal policy for the last two years of Donald Trump's term.
The dollar reacted first. The DXY index moved to 101.25 - its lowest since late September.
DXY is the dollar's exchange rate against a basket of major currencies. A weak dollar usually supports metals, but silver is still declining.
What is keeping silver down?
The main burden is the rate. According to CME FedWatch, the market estimates the probability of a Fed rate hike in December at 78%.
Silver does not generate interest income. That is why expensive money works against it.
Key point: a weak dollar works in silver's favor, a high rate works against it. For now the rate is winning, and the metal is losing ground to gold.
What is cushioning the fall?
Oil is absorbing part of the blow. It is at a four-week low amid US-Iran talks.
The trigger was reports of strikes on the Iranian island of Qeshm. Tehran and Washington are studying proposals from mediators. Cheap commodities remove some of the inflation fears.
What's next?
- The final vote count in the US elections
- The December Fed meeting - the date is in the economic calendar
- News on the Iran track and the progress of the talks
If you trade metals, it is more convenient to compare the terms on instruments in advance and pick a challenge for your market.
Did you catch this silver dump on your own account?
Everyone saw the move toward the yearly low. Only a few counted it in money. With an account of a couple thousand dollars, a one-dollar move per ounce produces an amount you won't notice in the monthly total. Trading notional matters more here than the entry point. Prop trading gives you access to someone else's trading notional: first a paid evaluation, then trading within the company's risk limits and your percentage of the result. It is calmer to understand this mechanic now than on the day silver starts to close its gap with gold.